Repco Home Finance Limited's (NSE:REPCOHOME) Share Price Boosted 25% But Its Business Prospects Need A Lift Too

Those holding Repco Home Finance Limited (NSE:REPCOHOME) shares would be relieved that the share price has rebounded 25% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 15% over that time.

In spite of the firm bounce in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 27x, you may still consider Repco Home Finance as a highly attractive investment with its 5.4x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

We've discovered 2 warning signs about Repco Home Finance. View them for free.

Recent earnings growth for Repco Home Finance has been in line with the market. One possibility is that the P/E is low because investors think this modest earnings performance may begin to slide. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

View our latest analysis for Repco Home Finance

Want the full picture on analyst estimates for the company? Then our free report on Repco Home Finance will help you uncover what's on the horizon.

How Is Repco Home Finance's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Repco Home Finance's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 19%. Pleasingly, EPS has also lifted 110% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 4.2% during the coming year according to the seven analysts following the company. With the market predicted to deliver 25% growth , that's a disappointing outcome.

With this information, we are not surprised that Repco Home Finance is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

Even after such a strong price move, Repco Home Finance's P/E still trails the rest of the market significantly. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Repco Home Finance's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for Repco Home Finance (1 can't be ignored!) that you need to take into consideration.

You might be able to find a better investment than Repco Home Finance. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.